GSTN Adds New ‘Core Entity’ Option to Block Fake GST Bills

The GST Network (GSTN) has installed a new option that necessitates for the taxpayer to choose core and single business activity on the web portal GST Portal. Think tank on tax reforms opines that the idea behind taking this step is to curb/stop immoral/dishonest businesses from obtaining Input Tax Credit (ITC) by demonstrating high expenses ratio (forged bills) on unrelated activities.

The prerequisite is that the taxpayer has to pinpoint the nature and details of the core domain of the firm on his profile page. Three options are accessible under the “core business” section— Service Provider, Trader, Manufacturer, Others. And a taxpayer has to choose only one core and single business activity. Business domains like work contracts and other miscellaneous items shall come within the purview of the “Others” category. So, if the taxpayer chooses to change core activity, he can do the same on the profile page.

Nevertheless, some businesses are deliberately not included within the purview of the aforesaid category. They include Online information and database access or retrieval services (OIDAR), embassies, and GST Practitioners. Tax experts, says “similar system was prevalent in the pre-GST regime, and the same has been revived to check large-scale fake bill and ITC frauds”

He explains: “There are times when a company in the manufacturing industry with high accumulated input credits would issue fake bills to another entity for, say, consultancy services or other business auxiliary services. It will then adjust the accumulated ITC against the GST payable on the fake bills issued.”

Once a firm declares its core and single business activity, tax experts from the tax department can put a question mark if it dishonestly hikes high-value invoices for unrelated services.

A GSTN spokesperson says the purpose behind launching the new feature is to regulate the practice of circulation of input tax credit (ITC) A complete guide for understanding the basics of input tax credit and it calculation with detailed examples under GST (Goods and Services Tax) India within a company. “Usually what happens, say a manufacturer sells to its sister company which claims to be into trading business and takes services from another sister concern which claims to be into providing a particular service. This way the ITC is kept circulating within the group.”

The government has floated a nationwide crackdown on input tax credit against forged bills and firms. As per the government sources, this procedure of grabbing fake firms has resulted in the total number of registered entities registered with GSTN have come down from 1.28 crore to 1.23 crore